Nordstrom Rack: a price discrimination scheme to sell unwanted or out-of-style clothes at a discount, located far enough out of town to avoid cannibalization. See earlier blog post on Why Outlet Stores?
Dear Froeb, While Nordstron and Bloomingdales may have a significant price tags when it comes to suits purchases, many individuals across industries have opted to rent this type of attire for special events. Not only is this approach in many occasions more cost effective as a capital expense, but equally provide the opportunity to wear attire of higher quality for single occasions events. Personally, I would recommend the rent approach in situations where the attire will only be wear once, the contrary goes for multi-use attires. Bridget
I agree. Rent The Runway has become widely popular among women! Goodbye to the days of special occasion dresses hanging in your closet unused because you were already photographed in 1000 times or because it isn't seasonal or on trend anymore. Now I can dazzle in a $500 designer dress for a $50 4 day rental - two sizes included and plenty of testimonials to see. No travel, no dressing rooms. The added bonus is the monthly unlimited program - they get $150 a month from me and I get to hold onto 3 items of my choice or as little or as long as I want. MBA class requires you in a business attire? Perfect! I never wear the same outfit twice. This model will surely expand into other categories soon as we continue put a higher value on our spare time.
Froeb, Certainly....nowadays many of us do not have the capital to be going to the store and spending $400+ for purchasing a suit that primarily will serve as a one occasion attire, instead, many have opted to go the rented route since no only provides the benefit of an initial reduction in capital expense for the occasion but in many cases it provides the option of getting an attire of higher quality than those we may be able to purchase as a capital expense. Off course, this options might not work for everyone, some may feel that holding an asset and depreciating it over time makes more sense than renting the attire as a temporary measure to address the situation or event.
I did not know that renting was an option either. That is until my own wedding. (No I did not rent my wedding dress lol)My husbands best man rented 2 dresses, one for rehearsal dinner and another for the day of the wedding. She had spent $100 for dresses she would have easily spent $150/each on to purchase. When you have special occasions I feel renting is a GREAT option. Spend less money and look great, while not committing to a purchase. Great Post!
Recently, I was asked to officiate a wedding for my sister. After going through the process to become an ordained minister, the next question was, “what should I wear?”. In my current job, I wear button down shirts and slacks, but have not been in a position where I have needed to wear suits regularly. Since my job role has been expanding, the obvious solution would be to purchase a suit that I would be able to wear for the wedding, as well as for future job requirements. Men’s Warehouse was having a buy 1, get 1 sale, so I quickly went to the store. I found many suits that were in the $200-$300 range, so I thought that if I were able to purchase 2 nice suits for under $500 that would be a steal. After browsing the selection and having an employee assist with “what looks best”, having then tailored and purchasing a few shirts to go with them, my total ended up around $1000. Was I the target of price discrimination? Possibly. The suits that were selling for $200-$300 were slim fit, meaning they were cut tighter around the waist and shoulders. I’m not a big guy by any means, but they were much tighter than I had hoped. The suits that were not slim fit, were closer to the $600-$700 range, which is why my price point was double than I had hoped. There is no doubt that skinnier, or shorter people pay less than individuals who are in the big & tall sections.
I personally shop at outlet malls and use rent the runway. I would drive an hour or so out of my way for outlet stores, but only if there were multiple stores I wanted to purchase items at. In the past I would purchase a new dress for every event I attended, and then never wore those dresses again. Spending anywhere from $75-$100+ on these dresses. Then I found rent the runway, I can rent dresses from $40, I have since rented for two Christmas parties, New Years, multiple weddings, bridal showers and baptisms. It has saved me money and closet space, and the dresses are very nice.
I do not think that outlet malls using price discrimination is a bad thing. Retailers are in the business of making as much profit as they can, by having outlet stores right next to their full price store the retailer would loose money. Those who aren’t willing to drive to the outlet store due to the distance, but are willing to shop at a cheaper version of the store right next door would overfill the outlet stores. By opening outlet stores away from the full price retailer only consumers who care about prices will travel to the outlets, those who do no care about spending more money for convenience will continue to spend more at the local store.
Outlet Malls and Indirect Price Discrimination Indirect price discrimination can be described as indirectly discriminating based on the difference between consumer preferences. Outlet Malls were designed for consumers who are price conscientious. They like brand names but do not want to pay the brand name prices from non-outlet retailers. Lower prices are available due to the location of the outlet malls not being in high rent areas. Also the ability of having an outlet store allows the retailer to offload season ending or past season items. The high-value customer typically will demand the latest style products at more convenient locations, such as high end malls. The retailers use this knowledge to broaden their profits by targeting the different consumers – one consumer shopping for price point and the other consumer shopping by convenience and newer styles. I am personally not an Outlet mall shopper. The Outlets are typically located in inconvenient locations miles outside of major markets. Also, from my perspective, the clothing quality is not the same or the clothes are massed together on sales racks that require time and patience to look through. I am more of a convenience shopper. I decide I want something I will go to the nearest big box and pick it up versus shop around for the best price. To me, time is money.
According to Froeb, et al, "price discrimination is the practice of charging different prices to different buyers or groups of buyers based on differences in demand". Price elasticity of demand is different for products amongst different buying groups and companies can improve profits by charging different prices to the different groups. I believe the price discrimination strategy used by Nordstrom and Saks in introducing stores like Nordstrom Rack and Saks Off 5th is very smart. The flagship properties of these retailers target a much different segment of the market than their off-brand siblings. Nordstrom and Saks segmented the market and designed a product set and marketing strategy, including distinct distribution channels, specifically for those segments. That's textbook marketing strategy in my book. It's wise for Nordstrom to have a distinct product and pricing mix for Nordstrom Rack. If they offered the exact same quality of clothing for a lower price at the Rack stores then the more affluent segment of customer would find out and either change where they purchase or not purchase at all. A distinct product mix for the Rack stores gives the retailer the opportunity to price discriminate but not alienate their core clientele. Very smart! But I'm left pondering if the Nordstrom / Nordstrom Rack scenario is true price discrimination? The shopping experience is very different between the two stores, including the merchandise and the way it's arranged, the quality and the pricing. This is a better example of market segmentation to me that pure price discrimination, which I view as offering the same or very similar product set at different prices.
All major stores have outlet stores to bring their products to more price elastic demand customers or people with lower incomes. Stores like the Gap, Bloomingdales, and Nordstrom, do this by setting up stores in an area where the demographic is a lower income or a lower value group. When stores do this we see a good example of a direct price discrimination scheme.
These stores then sell the idea the backyard store or outlet store is selling defective or out of date goods. In reality, they are hiding the fact that some of the goods are brand new and they just want to sell more to a different demographic of people for a cheaper price, while hiding this from those who will pay higher prices.
Direct price discrimination has been around for a long time and companies use this technique to help them maximize its profits by adjust its costs to the demand of the area. Although, this method of pricing does not only affect retail stores that are brick and mortar, we can see this even with the internet. For example, a store like Target, on the internet, may charge different prices for the same item depending on where you live and they will explain that those costs account for delivery costs.
In conclusion direct price discrimination will always be a part of the retail industry. Although, as consumers, we will need to learn to see through the scheme to get the best deal.
**thumbs up**
ReplyDeleteAw. Congratulations!!! -Adelyn
ReplyDeleteDear Froeb,
ReplyDeleteWhile Nordstron and Bloomingdales may have a significant price tags when it comes to suits purchases, many individuals across industries have opted to rent this type of attire for special events. Not only is this approach in many occasions more cost effective as a capital expense, but equally provide the opportunity to wear attire of higher quality for single occasions events. Personally, I would recommend the rent approach in situations where the attire will only be wear once, the contrary goes for multi-use attires. Bridget
I agree. Rent The Runway has become widely popular among women! Goodbye to the days of special occasion dresses hanging in your closet unused because you were already photographed in 1000 times or because it isn't seasonal or on trend anymore. Now I can dazzle in a $500 designer dress for a $50 4 day rental - two sizes included and plenty of testimonials to see. No travel, no dressing rooms. The added bonus is the monthly unlimited program - they get $150 a month from me and I get to hold onto 3 items of my choice or as little or as long as I want. MBA class requires you in a business attire? Perfect! I never wear the same outfit twice. This model will surely expand into other categories soon as we continue put a higher value on our spare time.
Deletei didn't even know renting was an option.
ReplyDeleteFroeb,
DeleteCertainly....nowadays many of us do not have the capital to be going to the store and spending $400+ for purchasing a suit that primarily will serve as a one occasion attire, instead, many have opted to go the rented route since no only provides the benefit of an initial reduction in capital expense for the occasion but in many cases it provides the option of getting an attire of higher quality than those we may be able to purchase as a capital expense. Off course, this options might not work for everyone, some may feel that holding an asset and depreciating it over time makes more sense than renting the attire as a temporary measure to address the situation or event.
Froeb,
ReplyDeleteI did not know that renting was an option either. That is until my own wedding. (No I did not rent my wedding dress lol)My husbands best man rented 2 dresses, one for rehearsal dinner and another for the day of the wedding. She had spent $100 for dresses she would have easily spent $150/each on to purchase. When you have special occasions I feel renting is a GREAT option. Spend less money and look great, while not committing to a purchase. Great Post!
Recently, I was asked to officiate a wedding for my sister. After going through the process to become an ordained minister, the next question was, “what should I wear?”. In my current job, I wear button down shirts and slacks, but have not been in a position where I have needed to wear suits regularly. Since my job role has been expanding, the obvious solution would be to purchase a suit that I would be able to wear for the wedding, as well as for future job requirements.
ReplyDeleteMen’s Warehouse was having a buy 1, get 1 sale, so I quickly went to the store. I found many suits that were in the $200-$300 range, so I thought that if I were able to purchase 2 nice suits for under $500 that would be a steal. After browsing the selection and having an employee assist with “what looks best”, having then tailored and purchasing a few shirts to go with them, my total ended up around $1000.
Was I the target of price discrimination? Possibly. The suits that were selling for $200-$300 were slim fit, meaning they were cut tighter around the waist and shoulders. I’m not a big guy by any means, but they were much tighter than I had hoped. The suits that were not slim fit, were closer to the $600-$700 range, which is why my price point was double than I had hoped. There is no doubt that skinnier, or shorter people pay less than individuals who are in the big & tall sections.
I personally shop at outlet malls and use rent the runway. I would drive an hour or so out of my way for outlet stores, but only if there were multiple stores I wanted to purchase items at. In the past I would purchase a new dress for every event I attended, and then never wore those dresses again. Spending anywhere from $75-$100+ on these dresses. Then I found rent the runway, I can rent dresses from $40, I have since rented for two Christmas parties, New Years, multiple weddings, bridal showers and baptisms. It has saved me money and closet space, and the dresses are very nice.
ReplyDeleteI do not think that outlet malls using price discrimination is a bad thing. Retailers are in the business of making as much profit as they can, by having outlet stores right next to their full price store the retailer would loose money. Those who aren’t willing to drive to the outlet store due to the distance, but are willing to shop at a cheaper version of the store right next door would overfill the outlet stores. By opening outlet stores away from the full price retailer only consumers who care about prices will travel to the outlets, those who do no care about spending more money for convenience will continue to spend more at the local store.
Outlet Malls and Indirect Price Discrimination
ReplyDeleteIndirect price discrimination can be described as indirectly discriminating based on the difference between consumer preferences. Outlet Malls were designed for consumers who are price conscientious. They like brand names but do not want to pay the brand name prices from non-outlet retailers. Lower prices are available due to the location of the outlet malls not being in high rent areas. Also the ability of having an outlet store allows the retailer to offload season ending or past season items. The high-value customer typically will demand the latest style products at more convenient locations, such as high end malls. The retailers use this knowledge to broaden their profits by targeting the different consumers – one consumer shopping for price point and the other consumer shopping by convenience and newer styles.
I am personally not an Outlet mall shopper. The Outlets are typically located in inconvenient locations miles outside of major markets. Also, from my perspective, the clothing quality is not the same or the clothes are massed together on sales racks that require time and patience to look through. I am more of a convenience shopper. I decide I want something I will go to the nearest big box and pick it up versus shop around for the best price. To me, time is money.
According to Froeb, et al, "price discrimination is the practice of charging different prices to different buyers or groups of buyers based on differences in demand". Price elasticity of demand is different for products amongst different buying groups and companies can improve profits by charging different prices to the different groups.
ReplyDeleteI believe the price discrimination strategy used by Nordstrom and Saks in introducing stores like Nordstrom Rack and Saks Off 5th is very smart. The flagship properties of these retailers target a much different segment of the market than their off-brand siblings. Nordstrom and Saks segmented the market and designed a product set and marketing strategy, including distinct distribution channels, specifically for those segments. That's textbook marketing strategy in my book.
It's wise for Nordstrom to have a distinct product and pricing mix for Nordstrom Rack. If they offered the exact same quality of clothing for a lower price at the Rack stores then the more affluent segment of customer would find out and either change where they purchase or not purchase at all. A distinct product mix for the Rack stores gives the retailer the opportunity to price discriminate but not alienate their core clientele. Very smart!
But I'm left pondering if the Nordstrom / Nordstrom Rack scenario is true price discrimination? The shopping experience is very different between the two stores, including the merchandise and the way it's arranged, the quality and the pricing. This is a better example of market segmentation to me that pure price discrimination, which I view as offering the same or very similar product set at different prices.
All major stores have outlet stores to bring their products to more price elastic demand customers or people with lower incomes. Stores like the Gap, Bloomingdales, and Nordstrom, do this by setting up stores in an area where the demographic is a lower income or a lower value group. When stores do this we see a good example of a direct price discrimination scheme.
ReplyDeleteThese stores then sell the idea the backyard store or outlet store is selling defective or out of date goods. In reality, they are hiding the fact that some of the goods are brand new and they just want to sell more to a different demographic of people for a cheaper price, while hiding this from those who will pay higher prices.
Direct price discrimination has been around for a long time and companies use this technique to help them maximize its profits by adjust its costs to the demand of the area. Although, this method of pricing does not only affect retail stores that are brick and mortar, we can see this even with the internet. For example, a store like Target, on the internet, may charge different prices for the same item depending on where you live and they will explain that those costs account for delivery costs.
In conclusion direct price discrimination will always be a part of the retail industry. Although, as consumers, we will need to learn to see through the scheme to get the best deal.